Monday, December 31, 2007

theIPOguru has a listing strategy for the new issues - Brigade Enterprises & eClerx Services. While the former is a real-estate developer (with a focus on residential properties) with Bangalore-centric business interests and other nearby areas like Mysore, the latter belongs to the fast emerging Knowledge Process Outsourcing sector. eClerx Services will be the first listed KPO on Indian bourses. Read the listing strategies for the two issues here and here.

- The employable population is set to account for close to 65% of the total population over the next 10-15 years

- More than 40% of the students drop out by eighth standard. Read this pdf on a survey on Primary education & the level of drop outs in Maharashtra.

- The ever-expanding share of the services sector in the overall GDP. Fast-growing sectors such as finance & banking, IT & ITES, insurance, engineering, organized retailing, etc. require employees with some form of formal education.

Total spend by the GoI on the education sector is set to cross Rs.1.25 lac crore in fiscal 2008. IT is expected to account for anywhere between 7-10% of this spend, resulting in an opportunity worth Rs.8,750 - 12,500 crore.

To know more about this sector and its concerns & prospects, refer to the following links:

Friday, December 28, 2007

I had written about Monsanto India a few days ago. Then, the stock was trading at Rs.1,550. The stock has since moved up to Rs.1,942, a gain of 25%. Have put some more information on the stock in the form of links alongwith an excerpt below:

Link 1:In India, management believes its cotton trait product has the potential to be planted on 15 to 20 million acres by 2010.Worldwide demand for cotton is projected to grow by about 20 million bales or 16 percent in the coming decade, according to an analysis published by Texas Tech University's Cotton Economics Research Institute in May 2007. China will remain on top in production, and the United States will fall to number three. India will rise to the second spot on the heels of recent technological breakthroughs in seed and production practices, according to the forecast.

When Hugh Grant took the top job at Monsanto in May, 2003, the company's nickname in some quarters was "Mutanto." A growing chorus of critics warned that Monsanto's genetically modified plant seeds would wipe out the monarch butterfly, give people virulent new allergies, and reduce the planet's agricultural diversity. Author Jeremy Rifkin predicted that genetically modified organisms (GMOs) would turn out to be "the single greatest failure in the history of capitalism." Paul McCartney urged the world to "say no to GMO." Prince Charles wrote an editorial arguing that genetic engineering takes "mankind into realms that belong to God and to God alone." During the 12 months preceding Grant's elevation, Monsanto's stock price fell nearly 50% to $8 a share. In 2002, the prior fiscal year, the company lost $1.7 billion. "We were pretty financially fragile," recalls Grant, 49, who speaks with the lilt of his native Scotland. Fewer than five years later, Monsanto is thriving. The St. Louis company's net income leaped 44% last year, to $993 million, on $8.5 billion in revenue. Monsanto shares, which closed at $104.81 on Dec. 5, have risen more than 1,000% during Grant's tenure. At 58.6, the company's price-to-earnings ratio is about two points higher than Google's. These numbers reflect a broader story: that Monsanto has quietly turned the tide in the war over genetically modified foods.

Over the last decade, innovation for ag-operational companies has focused more on the input side and how a farmer can get more benefits through seeds, Casale said. The shift has transformed investment in agriculture by both seed and chemical companies," he said. Monsanto spends about 10% of its total sales, which are expected to hit $10 billion next year, on research and development. Syngenta and other major seed producers also have robust research and development budgets and a pipeline of seed and chemical products to show for it. A majority of the spending focuses on genetically modifying seeds in order to produce a higher yield, said analyst Bill Selesky of Argus Research. If one result of global climate change could be increased drought, then drought-resistant corn and other crops would certainly help mitigate this stress," Selesky said. Seeds also are being genetically modified to withstand pesticides, resulting in better crop yields."Today, farmers are getting more bang for their buck," Selesky said.

Monday, December 24, 2007

Investment Objective: The primary investment objective of the scheme is to seek to generate continuous returns by actively investing in equity and equity-related or fixed income securities of power and other associated companies. The scheme has been a top performer in recent weeks, delivering a phenomenal 109% return over the last 12 months. Link.

However, a closer look at the most recent fact sheet indicates some interesting developments. One, the scheme holds close to 32% of its assets in debt, derivatives, cash & other receivables, two, it holds very little of NTPC (the largest power generation company in India by miles) and nothing of Power Grid Corporation (the largest power distribution company in India, a monopoly at this point of time) and three, the scheme has mopped up close to Rs.2,380 crore in the last four months ended 30th November 2007.

I think the first point, i.e. holding close to 32% in debt, derivatives and cash is a clear indication of Reliance Capital getting significant allocations during the IPO of Reliance Power. And, given how most of the Reliance group (ADA or MDA) stocks have fared over the past few years, it won't be surprising if Reliance Power does well too, infact very well. This, despite the fact that Reliance Power might not earn great revenues till 2010-11. Well, if Reliance Petroleum can command a mcap of over a lac crore without refining a single drop of crude oil, then so can Reliance Power !!!

Point two is a little perplexing given that both, NTPC and Power Grid are light years ahead of their competition so to that extent any play of the power sector it incomplete without the two. And, it is quite ironical that NTPC, which is around 6 times bigger than Reliance Energy & Tata Power (in terms of sales) and around 8-10 times bigger (in terms of bottomline), is quoting at a P/E of 24 times whereas Reliance Energy and Tata Power are quoting at 33 times and 51 times respectively.

The third point (i.e. Reliance Power fund mopping up close to Rs.2,380 crore and most of it lying on the sidelines) indicates that their is still some more steam left in the power sector rally. Personally, I think most of the stocks in this sector are quoting at unheard of valuations. But, then history tells us that most of the bull markets end up in excesses.

Talking of power sector valuations, you may want to see these three charts that I had prepared a couple of weeks back. The charts provide a bird's eye view of the various segments of the power sector, their financial performance over the past three years and their current valuations. One sector that stands out is Power Cables. The sector has been growing at a rapid clip and is also attractively priced. Among the companies in this sector, I have taken a small exposure to Nicco Corporation.

Saturday, December 22, 2007

Someone I know happened to visit one of Le Meridien's hotels recently. He gave me an interesting note he found attached to the 'bathrobes' at Le Meridien's. Here's how it goes...

"This bathrobe has enjoyed considerable success among our guests, to the extent that some particularly enthusiastic customers have become "collectors of Le Meridien bathrobes". While we recognize that this initiative helps spread the reputation of our establishment, we nevertheless urge our most fervent supporters to make an effort to separate themselves from this admittedly endearing garment when they leave. (Alternately, a bathrobe may be obtained in exchange for a few rupees)."

This is one of the most awesome "even if sarcastic" messages I've come across. Good one, Le Meridien !

Tuesday, December 18, 2007

Jyothy Laboratories, owner of brands like Ujala and Maxo recently came out with a public issue. The issue was primarily aimed to provide an exit route to its early investors, to that extent the issue was an offer for sale. The stock is listing on the bourses tomorrow.

Despite the current weakness in the market, we expect shares of Jyothi Laboratories to list at a healthy premium. At the upper end of the price band, the issue was priced in at a P/E of 21 times. Given that most of the FMCG companies are quoting P/Es of anywhere between 25-30 times, it will not be surprising if Jyothi Laboratories also lists at a similar multiple. With strong brand equity, wide distribution network, and well-distributed & tax-efficient production facilities, Jyothi Laboratories is a stock for the long haul.

Listed peers Advanta and Kaveri Seeds are quoting at a P/E of over 25 times.

Investment Argument:

# BIG OPPORTUNITY - India is home to the world's largest tract of arable land, yet its farm's produce yields that are a fourth of the global average. This augurs well for companies offering agro-chemicals (especially herbicides) and hybrid seeds, which improve farm yields significantly.# HIGHER DEMAND - Rising Consumption of Corn in India, thanks to increased consumption of western foods like Pizza, Sizzlers, and an increased usage of baby corn as a part of day-to-day cooking. Corn is also an important source of bio-diesel. Monsanto has a big winner in this category - 'Dekalb' (corn hybrid seeds). It is a global leader in corn seeds and has close to a 30% share in India.

# INCREASED AREA UNDER CULTIVATION - Higher crop prices, both in India and globally, and improving demand have resulted in a substantial shift from some of the other cash crops to corn. This year's Kharif crop pattern indicates this. Area under cultivation amounted to 74.6 lac hectares, as compared to the normal area of 62.2 lac hectares.

# STRONG PIPELINE - Monsanto India's parent company has a strong pipeline of new age hybrid seeds. R&D plays an important role in this industry with leaders such as Monsanto and Syngenta spending a significant amount of their revenues towards R&D.

# ROBUST RESERVOIR STATUS - Water levels in the 81 major reservoirs is healthy. They amounted to around 119% of the 10-yr average levels. Healthy water reservoir levels are an insurance against bad monsoons, and therefore render some predictability to the overall farming activity in India, which in turn determines the demand for farm inputs (such as herbicides and hybrid seeds, alongwith fertilizers).

At the current prices, the company can also be considered as a buy-back candidate. Infact, given that promoters hold close to 72.15% of the total equity, the cost of a buy-back will not be too high. Assuming, the company were to decide to undertake a buy-back, lets do some back of the envelope calculations -

Buyback price - Rs.3000 per shareMcap at the aforesaid price - Rs. Rs.2,581 croreCost of the buy-back - Rs.718 crore (for a 27.8% share)Current Cash & CE - Rs.250 croreActual cost of the buy-back - Rs.469 croreAnnual Cash Flow - Rs.92 crorePay-back period for the Company - 5.1 years. (Assuming 'NO' growth in cash flows, which is quite unlikely). Thus the pay-back period can be close to around 4-4.5 years.

Overall - At the current price, the Monsanto India scrip offers significant margin of safety with a healthy upside potential.

Points / Counter points ?????

Disclosure: Have a long position on this stock in the portfolios that I manage.

Tuesday, December 11, 2007

With reference to the earlier announcement dated July 30, 2007, relating to the signing of the term Sheet with Prysmian Cable Molding BV, Netherlands, Nicco Corporation Ltd (Nicco) has informed BSE that the Company has late last night entered into definitive agreements with Prysmian (Dutch) Holdings BV on the following basis:

1. Nicco and Prysmian (Dutch) Holdings BV belonging to the Prysmian group shall jointly participate in a new Company called Nicco Cables Ltd; where Prysmian (Dutch) Holdings BV shall become the majority shareholder (60%) with the Company holding 40%.

2. Prysmian Group is a world leader in the energy and telecommunications cables Industry with strong market position in higher-added value segments.

3. NICCO Cables Ltd, will acquire the Cable business from the Company pursuant to a Scheme of Arrangement and / or on slump sale basis, and shall be the Joint Venture Company. The common participation into the joint venture and the transfer of the business are subject to conditions precedent including approvals / consent of the Shareholders, lenders / CDR, Hon'ble High Court and other requisite parries / authorities as may be applicable.

- The Joint Venture will benefit from the combination of Prysmian's global knowledge and technology expertise and Nicco's business network and knowledge of local market and will be also well positioned to exploit the strong growth trends in Indian Cable market driven by substantial investments in infrastructure.

4. The main features of the contractual arrangement in relation to the Joint Venture Company are as under:

a) The Board of the Joint Venture Company shall consist of five Directors, three of them including the Managing Director to be appointed by Prysmian and two of them, including the Chairman, to be appointed by Nicco, Mr. Rajive Kaul, Chairman of Nicco shall be the Chairman of the JV Company. Prysmian will be responsible for managing the Joint Venture's operations.

b) Nicco shall receive a consideration in excess of Rs 130 crores, (subject to adjustments), for the transfer of its cables division. The transaction will also result in, inter-alia, the debt relating to the cables business getting transferred from the Company to the Joint Venture Company.

- Nicco Corpn will hive off its cable biz and the debt attached to it- Nicco Corpn will receive an additional Rs.130 crore for this stake sale- Investors will therefore (probably) receive shares in Nicco Cables (the new entity) and will continue to hold some stake in Nicco Corpn.

- The question now is, what will the new Nicco Corpn (minus its cable biz) do?????

- And, what will the management do with Rs.130 crore that the company will receive from Prysmiam???

The company has two divisions - cables and project engineering. However, the cable division (that includes both telecom cables and power cables) accounts for close to 80% of the total sales. With both the telecom and the power sectors doing very well, demand for Nicco's wares is firmly in place. However, owing to operational and financial troubles, the company's networth almost turned negative in recent years.

Sonata Investments' (Anil Ambani-Rel. Energy group co.) stake in this company is around 14.75%. The investment arm of the ADAG group is known to have made some smart investments in the past, e.g. TV Today, SAREGAMA, and a host of other media companies. So what could have interested the ADAG group to pick up a stake in this troubled company ?? As of now, I have no idea about the same.

However, there are some other interesting developments taking place at this counter -

Prysmian signed a term sheet with Indian Nicco Corporation for a majority stake of a New JV Cable Company

Milan 31st July 2007.Prysmian Cables & Systems, a worldwide leading player in the cable industry, has signed a Term Sheet with Indian Nicco Corporation to become the majority shareholder of a new joint venture company that will encompass all Nicco Corporation's cable activities.The Board of Directors of Prysmian today approved in principle the entrance into the Term Sheet. The deal, subject to the finalization of a definitive agreement and further approval/consent of Nicco's corporate debt lenders and relevant local authorities, is expected to close during the first half of 2008. Nicco Corporation will remain as a minority shareholder of the new Joint Venture Company.

With net sales of 55.2 million Euro in Fiscal Year 2006-2007 Nicco Corporation's cable division has 2 manufacturing operations, 6 branch offices located in the country's most important urban areas and approximately 900 employees. Nicco Corporation's cable division is active in the production of a wide range of medium voltage and low voltage power cables and industrial cables for applications in several sectors (OEMs, Windmill, Infrastructure, Mining, Raylways, Defence, etc.).

Now the question is, if the cables division will be hived off, what will Nicco Corporation do? Only Project Engineering? Whether the new cables company (in JV with Prysmian) will be a listed company? The management has provided no clarity on this.

Another interesting (both positive and negative) bits on the company include:

- 25% Holding in Nicco Parks (mcap - Rs.41 crore, Nicco Corp's stake value - Rs.10 crore). Reports have it that Nicco Parks owns 40 acres of prime land in Kolkata (something I still need to confirm), which is valued at close to Rs.2000 crore, valuing Nicco Corp's stake in the company to Rs.500 crore (vis-a-vis its current mcap of Rs.317 crore).

- Steady decline in promoter's stake in the company, down from 17.4% to 16.9% (during Mar - Sep '07).

Conclusion: Something seems to be cooking up on this counter. What, is the question?

Disclosure: I own shares of Nicco Corp, bought at Rs.24 per share. The stock is fraught with high risk (thanks to the uncertainties mentioned above) and therefore forms a very small portion of my portfolio.

Saturday, December 01, 2007

It's been more than 3 months since I last blogged. During this hiatus, I made a whole host of new investments and am currently working on a few more ideas. Will share each of these over the next few weeks. Have altered my approach towards money management too. The focus now will be to keep a well-balanced portfolio, that includes both growth investments and value stocks. The ratio I am comfortable with is around 60:40, in favour of growth stocks.

Growth stocks - Stocks that are currently under-researched or are still evolving but offer great promise in the long run. The two key factors here are - scalability of business (growth potential) and the management (growth engine).

Value Stocks - These are mis-priced stocks available at significant discount to their 'current' fair value. The key factors to look here are - P/E, P/B, [ lower the better] and Return ratios (RONW or ROCE) [higher the better]. Some of the investments in this category may include stocks that are currently undergoing some kind of a restructuring, which is likely to yield results at a later date.

The ratio 60:40, in favour of growth stocks, will primarily work in this way - profits out of value investments will be pumped into growth stocks, given that most of the growth investments take time to mature.

Further, instead of investing in lumps, I've started investing in a more systematic manner. The rule is 10% of my monthly basic salary is put into stocks.

I hope my new and fine-tuned (or so I think) investment plan works fine, it has done so far in the past few months, but then 3-4 months is too short a period to gauge any performance.

Friday, August 17, 2007

Taking a long sabbatical from blogging. Will be back after a few months. Have learnt a lot over the past few months from a lot of you. Thanks for all those who subscribed, commented and read this blog.

Tuesday, August 07, 2007

Aug. 6 (Bloomberg) -- If companies keep hiring, the economy will hang in there just fine.

There's something counterintuitive about that proposition, and repeating it often enough (it's one of economists' favorite palliatives) doesn't make it true. I mean, businesses don't hire out of the goodness of their heart or to earn humanitarian awards. Quite simply, they hire people to produce the goods and services consumers want to buy, hopefully turning a profit in the process.

Companies would prefer to do it all with machines, which don't get paid holidays, a lunch hour or sick days (well, maybe some mechanical downtime now and then). Industrial equipment doesn't need health insurance, complain about the boss or file sexual harassment suits.

Most businesses, however, can't function without humans, at least not yet. So they hire the minimum number of workers they need to earn the maximum possible profit. It may be crass, but that's how it works.

So what to say when you read comments that distort the natural order of things?

For example, following news on July 27 that the U.S. economy expanded at a real 3.4 percent rate in the second quarter, up from 0.6 percent in the first, an economist told the Wall Street Journal that ``the real risk for consumer spending is if for some reason companies slam on the brakes and stop hiring.''

In other words, if businesses just keep adding to their payrolls, the consumer will keep on spending his wages. The catalyst in this model is business hiring.

Cluck, Cluck....--

Read the entire piece here. I simply love her style of writing, that too articles in Macro Economics. Highly Recommended.

Saturday, August 04, 2007

Man Industries reported a robust financial performance for the quarter ended June 2007.

> Sales were up by 54% to Rs.321 crore> PBDIT was up 60% to Rs.38 crore> PAT shot up by 66% to Rs.17.4 crore

The company reported an EPS (on full dilution basis) of Rs.6.5.For the full year though, it is expected to report an EPS in the range of Rs.25-30 per share.At a CMP of Rs.267, the company is trading at a price-to-earnings multiple of less than 10 times. It remains a BUY in my books and I continue to hold it. Though, I do trade in and out of it occasionally.

Thursday, August 02, 2007

George Soros' Quantum Fund was a big seller in Indian markets today, at a time when the Sensex crashed by 600 points. Is it just a beginning of a bigger outflow from FIIs? Or is there more to this than what meets the eye?

Friday, July 27, 2007

Almost a no-brainer that the Indian equity juggernaut will receive a jolt today. Equity markets in India held on nicely in the last two days. That, I think was primarily because of yesterday's expiry on the F&O market. As the top traded options were primarily put options they had to expire worthless and they did. Read my previous blog entry on this.

But with the new expiry beginning today, markets are quite vulnerable to global shocks....and today is likely to one of those days. Hang on to your seats as we see volatility take centre stage over the next few sessions.

Thursday, July 26, 2007

Have read on many occasions in the past that most of the options in the F&O market expire worthless. However, I dont have any data to support / test this claim. But, suppose if were to go by this claim and were to assume that most of the options do end being worthless, what can be guaged from this?

The first question that we need to ask is: Who are the sellers in the Options market?

I don't think its the retail investor. I think most of the option sellers are the supposedly smart investors. If that is the case, then it makes an interesting reading of the Options market, a day before the expiry.

Lets then try to build a hypothesis, based on the above:

1. Most of the Options on the F&O market expire worthless

2. Most of the Options are written by smart investors

3. Thus, we can say that Smart Investors write most of the options, which also happen to expire worthless

4. We know that every trade has a buyer and a seller. Thus, options with highest volumes are also the ones which have maximum Smart Investor interest, since they are the ones who write most options.

5. Since Smart Investor interest is the highest in top traded options, they must be on the sell-side, since it is highly unlikely for retail investors to sell options, in any case, and that too on the penultimate day.

6. Thus, top traded options on the penultimate day reflect Smart Investor's outlook for the market, the following day.

Put contract dominate Call contracts by a margin of around 10,000 contracts. If looked at more closely, between the SP range of 4,500-4,600, there are close to one lac contracts traded with close to 60k on the put side. Thus, it is quite likely that most of these contract will expire worthless, i.e. Nifty will end above 4,600. Infact, almost all these contracts will expire worthless if the Nifty closes exactly at 4,600 today.....we will see that in about 15 hrs from now....

Saturday, July 21, 2007

JK Lakshmi Cements came out with its first quarter performance today. The company reported robust numbers. The company's profit performance is far better than many of its listed peers. A brief look at the numbers:

> 12M trailing EPS - 36.7> At a price of Rs.151, the stock trades at a P/E of a mere 4.1 times, one of the lowest among its other listed peers.

The company's results in the next few quarters are expected to be equally robust, given firm prices and higher volume growth (on the back of capacity expansions that were completed by the end of the Mar'07 qtr). The Sep'07 quarter is likely to be particularly good. This is because Sep'06 was a poor quarter for the company, owing to heavy rains which affected both production and despatches.

Thus, with a low base, the Sep'07 numbers are expected to look phenomenal. More important will be the expansion in the 12M trailing EPS, which now stands at Rs.36.7 per share. I expect that to go up to around Rs.42 to a share. At that kind of an EPS, the scrip will trade at an EPS of around 3.5 times. Ridiculous levels to be trading at, I think.

I have written about this company twice in the past. You can read it here and here.

Monday, July 16, 2007

Subros, an investment I made back in Jan'06, witnessed a spurt of close to 10% today. The rise was backed by a sharp jump in volumes (up from an avg of 14k to 95k), however, the percentage of shares delivered was quite low at around 27%.

> a Board meeting to consider Stock Split and the Final Dividend for the year.

This hardly sounds like a reason to cheer the stock up by around 10%. Don't think the run-up is sustainable. Had the delivery percentage been higher, there would have been a hope for the rise to sustain itself.....but with a 27% delivery it doesn't look like it...will be watching the counter closely over the next few days.

Saturday, July 14, 2007

Deutsche Bank has come out with an insightful report on the Cement sector. It argues that the Cement story is pretty much intact, and the better days (in terms of profits and profitability) are still to be seen. It has forecast the cement party to continue till FY10.

The DB report is bullish on major cement companies like ACC, GACL, Grasim, India Cements, Ultratech Cement, and Shree Cement and has put out price targets that 20-39 per cent above the current levels.

I had invested in a company called - JK Lakshmi Cement back in March at around Rs.120 per share. The stock has since moved to Rs.132, a modest gain of 10%. However, I think there is a lot of steam left in this stock.

It is among the cheapest cement stocks with a price-to-earnings ratio of less than five times. It reported an EPS of Rs.32 per share for the year ended Mar'07. One of the plausible reasons why this company is trading at such ridiculously cheap levels could be its high leverage. I think it has Debt-to-equity ratio of over 2.5 times. Nevertheless, consider the following positives:

> the company recently expanded its capacity, thus growth in profits to not only come from higher prices but also from higher volumes

> the company is setting up a captive power plant, 36MW, which will pull down power costs that account for a third of cement companies operational costs...and maybe more in some cases..

Now, the DB report values the much larger and leaner cement companies at a P/E of around 14 times, discounting their FY09 earnings.

Even if JK Lakshmi Cements were to be valued at half that rate, ie. at 7 times. The target price of the scrip would be around Rs.210, a good 60% above its CMP of Rs.132. That on the basis of its current 12-month trailing EPS.

If the same is assumed to grow at around 30% over the next two years, which the DB report does given its price outlook, the EPS at the end of FY09 could be close to Rs.50 per share. A multiple of 7 times on the FY09 EPS would take the price target to Rs.350 per share, compared to its CMP of Rs.132.

Friday, July 13, 2007

The inflation numbers were released this noon. the Wholesale price index recorded an increase of 4.27%, slightly higher than the increase recorded in the previous week. The WPI, however, remains lower than the RBI "act_now_trigger" level of 5%.

I had invested in Ankur Drugs more than a year ago at around Rs.92 per share.....but sold out recently at around Rs.200 per share. Since then the damn thing has appreciated by a phenomenal 120% and is currently quoting at around Rs.440 per share :( :( :(

this has happend to me quite a few times in the past....more often than not i've ended up selling far too early.......a few examples -

I had invested in Man Industries over an year ago. Had invested at various prices, starting from Rs.188 to Rs.220. However, the stock remained stuck in a trading range for over an year now. Time has now come when the street is realising the fact that these companies merit attention, given the kind of investments pouring in the oil & gas segment, across-the-globe. Saw pipes sit right at the centre of oil & gas transportation.

Indian companies are fast gaining criticial size in this business, led by Jindal Saw, Welspun Gujarat, PSL and Man Industries. Each of these companies are sitting on order-books which twice the size of their current annual sales, rendering high visibility over the next 2-3 years. they are today where capital goods and construction companies were an year back......

Tuesday, June 19, 2007

Investors are advised not to invest in the ICICI Bank FPO given that the current public issue is likely to result in close to 20% equity dilution. What this means that for the stock to sustain the already higher valuations, its price needs to drop by around 20%, i.e. to around Rs.750-800. Besides, there other financially & operationally superior banks available at comparable (HDFC Bank) or cheaper (UTI Bank) valuations.

Update (20-Jun-07): You can see the subscription details of this FPO here.

Day I - Retail investors bid for a mere 2.1 lakh shares on the first day of the FPO, out of the available 3.2 crore shares!!!

Day II - The count has improved a little to around a 1.2 million shares, though still light years away from the quota of 3.2 crore shares...??? How many think that the retail portion will get fully subscribed????

Day IV - The FPO finally closed on Friday. Along expected lines, the issue got heavily subscribed on the QIB side, but surprisingly managed to scrape through the retail portion too....now lets wait and watch....whether the stock cracks in the trading sessions to follow....my feel is, it will drop hereon.

The Economist has a nice article on the recent crash in bond prices in the US that result in treasury yields jumping to a five year high of 5.33%, up from 4.9% a fortnight ago. The article can be read here. And another one here.

Friday, June 15, 2007

I am currently reading Education of a Speculator by Victor Niederhoffer. It's a wonderful read for people interested in investing / trading / speculation. You can read more about it - here. He also runs a blog - Daily Speculations, again a wonderful place to read insightful articles on markets / investing / speculation..etc.

Monday, June 11, 2007

Btwn, Enam Securities too came out with a report on the Real Estate sector and has rated "DLF" as an underperformer with a price target of less than Rs.420, i.e. a good 15-20% below the issue price.

Update: Rakesh Jhunjhunwala in an interview with CNBC had this to say about the DLF IPO:

Q: Have you invested in the real estate sector at all?A: I don't have any investments in real estate.

Q: How is that possible, last one-one and half years they have been some of the biggest multi-baggers? You must have had reasons to look at those opportunities and let them pass?A: It's a very dicey subject. None of the real estate companies pay tax. I don't know how they get their profits. Second thing I also feel that anything, which can be valued as one plus one is equal to eleven; is not what ultimately gives you returns in markets. I don't know, I have never been into real estate bull in my life and wrongly so.

Q: But you have bought a lot of real estate yourself; how come you don't buy those stocks?A: I have not bought any real estate. I bought a house and office.

Q: Commercial real estate you have dabbled in the past, haven't you?A: Not at all. That's not my cup of tea.

Q: So you would not be queuing to buy DLF, would you?A: No I wouldn't.

Q: Why - valuations or innate distrust of the business?A: I would say valuations, more than anything else.

Q: So you have had a look at it?A: Yes.

Q: You don't agree with those - slight premium to land bank - those kinds of valuation models at all?A: Why should I go and buy DLF, I will buy the land only.

Economics textbooks have for long taught us "There Ain't No Such Thing As A Free Lunch".However, the Indian primary market seems to be an exception to this rule. A study of over 100 IPOs in the past three years reflects the same. A spreadsheet of the study can be downloaded from here.

I think it is this free lunch that has caused so much trouble in the IPO market. The IPO scam that was unearthed by the SEBI last year. The scam in brief was this:

"It involved manipulation of the primary market—read initial public offers (IPOs)—by financiers and market players by using fictitious or benaami demat accounts. While investigating the Yes Bank scam, Sebi found that certain entities had illegally obtained IPO shares reserved for retail applicants through thousands of benaami demat accounts. They then transferred the shares to financiers, who sold on the first day of listing, making windfall gains from the price difference between the IPO price and the listing price."

Any investment that earns returns (above the risk-free rate) without any risk will attract infinite investors. However, since the supply of IPO stock is limited, and there are limitations to how much one can apply, there is a mad rush to invest in IPOs.

D-Link India has been bearing the brunt of falling realisations in case of products like motherboards. It's margins have shrunk substantially over the past 3 yrs. However, the worst seems to be over for the company and over the next few years, growth in sales and profits will be driven by broadband and networking related products. Its only a matter of time before the CPE segment hits big in India.....the broadband sector in India is ripe for a growth seen in the telecom sector. What can be the potential size of this market:

Well here are some numbers to ponder:

1).One modem (cable or DSL) approximately costs Rs.1500-2000.

2).So if we hit 20 million broadband connections in the next few years with say 50% using DSL or Cable Modems, we are looking at 10 million modems and thats around Rs.1500 crore.

3).Even if the co. captures 20% of this, its looking at Rs.300 crore (same as its full year's turnover in FY07).

4). And as the number of broadband connections grow....so will D-Link's topline and therefore its stock price too!!

This ratio sounds more like our usual P/E ratio, and it actually is...in terms of the price the company will pay to acquire the remaining stake and time it will take to earn it back. The reason I am strongly in favour of a buy-back is the [USE OF CASH & CASH EQUIVALENTS]. There are neither being used for business purposes, since their current business barely requires any major CAPEX and nor is the mountain of cash being deployed for other purposes such as a OTS special dividend, acquisition, etc.

If the co. can't find any good reason for deploy its cash, it might as well give it back to the shareholders, instead of sitting on it for years. It only does one thing, destroys shareholder wealth, and plenty of it!!

A rising pile of cash, invested essentially in conservative mutual fund schemes (debt & liquid) can at best earn returns of 8-10% or in an exceptional case, a little more. Compare the same with the company's Return on Equity of over 35%!!

Sunday, June 03, 2007

Thanks to some sane brain in the Delhi High Court.....the CFA exams finally took place in India. Really don't understand the logic behind AICTE blocking CFA institute in India......i did my MBA(Fin) from a college which did not have any AICTE approval...and there are literally hundreds of other MBA colleges (offering Post Graduate degrees), both in Mumbai and outside who do not have any kind of AICTE approval, and yet each one of them is happily offering MBA courses at sky-high prices. When I did my MBA, the per annum cost was around Rs.32k, today the same college charges close to a lac.

Thursday, May 10, 2007

Friday, April 27, 2007

Came across this interesting site - Prosper.com that allows people to trade loans, just like they trade in various goods on ebay. In short, an online auction of personal loans upto USD 25,000 per person. Innovative, isnt it? Feasible? Well, total transactions reached USD 50 million...and rolling!

Wednesday, April 25, 2007

The Board of GTL (the erstwhile Global Telesystems) today approved the following:

GTL Ltd has informed BSE that the Board of Directors of the Company at its meeting held on April 25, 2007, inter alia, has recommended following:

1. Buyback of Company's shares at Rs 300 per share.2. Set aside an amount of Rs 275 crores for the buyback.3. The buyback is subject to the approval of shareholders and regulatory authorities.

However there are the few questions that come to one's mind -

1). How serious is this offer given that the current market price is only Rs.185, a good 40% below the offer price?

2). If the company wished, it could have simply bought back shares from the open market, I think SEBI allows companies to buyback 5% of their equity from the secondary market in a year without triggering the open offer.

3). If at all the buyback offer is serious, why did the share price did not witness a substantial increase today?

4). In fact, the scrip witnessed huge volumes today, six times more than the daily average over the last 2 weeks and more importantly witnessed heavy supply at higher levels which resulted in the share price falling down from a high of around Rs.193 to close at Rs.185.

GTL has a poor track-record and was reported to be one of the Ketan Parekh's favorite stocks in 2000-01. After the crash it had witnessed close to 98% price erosion....from a high of Rs.3,500 it fell to as a low as Rs.65-70 per share. And, I think this release on the BSE is completely non-serious. The company is not likely to buy 9.1 million shares @ Rs.300...and spend Rs.275 crore...when it can easily buy the same from the market at less than Rs.200 crore.

Investors looking to invest into this company should tread caution....

An interesting analysis of Warren Buffet's investment performance by allaboutalpha.com

Here's an excerpt:

Who am I to question the Great One? He’s produced 21% CAGR for 40 years and I don’t even use my real name when I write blog postings. But I have to push back a little on Buffett’s entertaining, but somewhat misleading salt-of-the-earth populism. It certainly sells tickets at the Qwest centre, but it’s an unhelpful contribution to the important debate over investment management fees.

In fairness, Buffett is one of then world’s most successful producers of alpha - beating the S&P500 by an average of 10%p.a. over the past 4 decades. But he takes his usual swipe at the “2-and-20 crowd” in his recently released 2006 investment letter. We commend his implicit emphasis on alpha as the raison d’etre for fees, but he is too quick to assume hedge funds simply deliver beta......

Monday, April 23, 2007

The Chinese Yuan has seen a one-sided movement against the USD. Over the past one and a half years, it has witnessed an appreciation of close to 7 per cent. How significant is this? News reports suggest that it is quite significant, so far as the Chinese garment industry is concerned. Came across a few articles that highlight the same:

Does this bode well for Indian textile companies? Maybe, especially if the sharp appreciation in Yuan forces Chinese companies to raise prices. However, one important thing that can nullify the above is a continuation in the appreciation of the rupee vis-a-vis the dollar, as seen in the last one month or so.

Watch the currency movements closely over the next few months as also the export numbers, both from India and China to the US.

Textile scrips have been big underperformers on the bourses over the past one year. Scrips like Arvind Mills, Alok Industries, Gokaldas Exports, House of Pearl Fashions, etc. all are down by anything between 15-50 per cent. With prices at their 52-week lows and valuations looking down the barrel, it wont be a bad idea to invest into some of these. A Contrarion Call.

Saturday, April 21, 2007

Was reading a research report by a firm called - First Global (does it sound like a familiar name?? flash back 2001!!!). Was awestruck with their latest recommendation.

Petronet LNG - Long-Term Moderate Outperform.

Wonder how many of their clients wud have understood what is to be done with Petronet LNG, given the kind of recommendation??? You either say - BUY/HOLD/SELL. What on this earth does LONG-TERM-MODERATE-OUTPERFORM mean??

FG usually offers ratings from the list of following recommendations (which in itself is quite a long list of recommendations):

Positive ratings- Buy- Buy at Declines- Outperform

Neutral ratings- Hold- Marketperform

Negative ratings- Sell- Sell into strength- Underperform- Avoid

Long-Term-Moderate-Outperform........is a new addition to the list. All the best FG clients.

Well, if we thought that control-raj is restricted to agro-commodities and industries goods, think again! The Board of Control for Cricket in India recently released a few guidelines, primarily to save its face following the humiliating defeat of the Indian cricket team at this year's Cricket World Cup. Some of the guidelines, which are similar in nature to the above cases are:

1). No. of endorsements per player restricted to THREE2). No brand can hire more than two cricketers3). Players to take prior permission from the Cricket Board before signing endorsement deals

What the BCCI aims to do by this is really questionable?

Because, the problem of non-performance in no way can lie with endorsement deals. Cricketers who get a lot of endorsement deals are the ones who are seen as good players or who have performed well in recent times. So really speaking if a player aint playing well, will the sponsor still continue paying top dollars to the underperformer? I think not. Its simple advertising economics. And to top it all, if the Cricket selection committee were to think that a player is not giving his best and is instead concentrating more on sponsorship deals, then they can simply DROP HIM from the next series. Once dropped, a player holds not much of a brand value for the sponsor. Earnings from sponsorship deals will automatically drop and the pressure to perform will mount.

But ofcourse, the BCCI needs to be seen to be doing something....and thats precisely what it is doing, much like some of the Ministeries at the Centre.

CONTROL RAJ coming back with all the expected (read: Anti-Market Economy) effects!

Wednesday, March 28, 2007

An appreciation of close to two per cent in a span of five working days....and around double that in over a months time!

Has RBI stopped buying dollars from the open market, because the inflows are not as strong to result in a four per cent appreciation in the rupee against the greenback?

Ofcourse, the sharp appreciation in the rupee against the dollar will keep foriegn investors happy since besides the gain from appreciation in stock prices, FIIs also gain from an appreciation in Rupee. This is because for the same amount of rupees, currently invested, they stand to earn more dollars.

However, Indian IT companies wont like this sharp appreciation in rupee. Since they are exporters of services and earn their revenues in dollars, they will get less rupees for the same number of dollars compared to a month ago. Their margins will take a hit if the rupee appreciation continues.

here's a small and a very simplistic example:

- Company: Infy- Size of order executed: USD 100 million- Order finalised in say Feb: when the conversion rate was Rs.44.5 to a Dollar.- Infy accordingly submits its quote, gets the order and executes the same.- It stands to earn a 20% margin, ie. USD 20 million or if converted into INR (@ 44.5), Rs.89 crore.

- Suppose INR to a Dollar appreciates to Rs.42.8 (as is the case now). For its USD 20 million, Infy will now recieve (20,000,000 x 42.8) = Rs.85.6 crore or a loss of Rs.3.4 crore.

Watch out for a weakness in IT counters on the bourses. Infact, its not just the IT companies, but also garment exporters (Gokaldas, for eg)., and pharma companies.....

Tuesday, March 27, 2007

Ever spent 15 minutes on the phone shouting answers at the automated airline attendant while rushing to the airport? How cool would it be to get real-time flight info just by sending a quick text message? Well, now you can using Google SMS.

Simply text your flight number to 466453 (‘GOOGLE’ on most mobile devices), and the status information will be sent back to you. Or text a specific airline name, and Google will send back the main phone number to call.

This is available for flights departing or arriving in the U.S., and all of the information is provided by flightstats.com. And as always, it’s free.

After arm-twisting producers to push down the prices of sugar, steel and cement, the government is now considering lowering the price of milk, oilseeds and fertilisers as part of its campaign to tame inflation. Our resident astrologer predicts the future of the war on inflation.

1 April 2007: After a huge rally by oilseed farmers protesting against the maximum price, the government announced a minimum price to be paid to farmers for oilseeds, which will be higher than the maximum price paid by consumers. The difference will be recovered through an oilseeds cess to be paid by oil companies.

15 April: With WPI inflation going through the roof, thanks to a big jump in the price of eggs and fish, the government today imposed price controls on eggs and fish. "It's aimed at buying support from the fish-eating Goa population before the assembly elections there," said a cynical opposition member.

1 May: Milk producers have complained that they were forced to charge higher prices because of the high cost of milch cattle. The commerce minister has imposed a price ceiling on cows. Meanwhile, the plea by oil companies that they have nothing to do with oilseeds has been rejected.

1 June: WPI inflation numbers have jumped this week on account of a sharp rise in the price of gingelly oil (up 12 per cent), copra (up 9 per cent), zinc ingots (17 per cent), fluorite (48 per cent), fire clay (29 per cent), steatite (20 per cent), magnesite (13 per cent), felspar (4 per cent), kaolin (3 per cent) and capsules other than vitamins and antibiotics. The government has promptly announced price controls on all these items.

15 June: Egg producers have complained to the finance minister about the high cost of hens, which they claimed was the major reason for the rise in egg prices. A decree has since been signed by the finance minister imposing a price ceiling on hens.

30 June:Copra producers have argued for a level playing field. Conceding to the force of their argument, the Prime Minister today issued an order that no coconut in the country should sell for more than Rs 6.75 each.

1 July:The PM today amended his order on coconuts and announced that large ones (measuring more than 4 inches in diameter) may now be sold at a higher price of Rs 7.25 each.

15 July: With eggs, fish, felspar, kaolin and coconuts being sold in the black market, the government has threatened severe action. The Enforcement Directorate has been told to crack down on money laundering by fishermen. "Every rotten egg trader should be hanged from the nearest lamp post," thundered the home minister.

1 September: The dates for the Gujarat state elections have been announced. In other news, the government has imposed price controls on dhokla, thepla and khakra.

15 September: The ceiling on zinc prices has led to zinc producers shutting shop, as a result of which zinc users have to use high priced imports. To counter this anti-social behaviour, the government today announced that each zinc producer must produce a minimum of 10,000 tonnes of zinc or face immediate execution.

1 October:Stung by criticism that the government has done nothing to stem the rise in prices of services, price ceilings have been imposed on dance bars.

15 October:Gearing up for the 2009 Parliamentary elections, the finance ministry today released Volume 1 of the Price and Production Control Handbook (932 pages) containing detailed lists of items under price ceilings and production quotas. Volumes 2 and 3 will be out soon. "We are proud that we have been able to bring out this document in the 90th year of the founding of the Soviet Union," gushed the finance minister, whose designation will soon be changed to Comrade Chief Price Controller. In other news, the Republic of India today changed its official name to 'The Union of Indian Socialist Republics' (UISR).

Friday, March 23, 2007

Friday, March 09, 2007

Blog reading has become even more interesting. Over the past few weeks I've been reading this blog by Mark Cuban. The guy has been after Google for sometime, ofcourse not in the usual "I need publicity so let me take on someone famous". He is quite a celebrity himself and has been writing a lot about Google and Youtube on his blog. His observations are not only very interesting but are also very insightful.

Read and enjoy. Here's an excerpt of his latest blog entry -

This past week I decided to supoena Google to get the names of users that were uploading copies of our movies. I have no intention of pulling an RIAA and suing the users. I do have every attention of sending supoenas early and often to get the names and emails of users uploading our content they have pirated.

Why ? To learn.

I expect that the users will have given fake information, but i want to confirm that is the case. It will be a useful data point. I find it hard to believe that when there is ultimately a legal battle, that the courts will allow a company that I suspect that from time to time we will get the emails and actually be able to make contact with users. That is when it could get interesting. I want to ask them some simple questions. The first of which is why ? Sure there are a lot of possible and obvious answers, but maybe the will tell me something new or interesting that I can learn from.

The 2nd question will be whether they were induced by Google in any way to upload the video. Not that I think Google coerced them in any way. I don't. But I want to know if they feel that Google endorses and supports uploading and streaming of pirated content. I want to know why they ignored the warnings that are on the video upload page.